Never mind those inflation calculators you find all over the internet — Free Exchange and Brad DeLong both have posts up today asking pointed questions about what yesterday’s money can buy today. First Brad DeLong, resuscitating an old post of his about the income of Fitzwilliam Darcy: apparently ߣ10,000 a year in 19th-Century Britain is equivalent to either $300,000 a year today or perhaps $6 million a year today, depending on how you look at it.
And then Maybe Megan McArdle quotes Matthew Yglesias quoting Robert Farley:
Why is it that the United Kingdom, which is in an absolute sense far more wealthy now than it was in 1930, having difficulty maintaining a foreign deployment of about 10,000 total in Iraq and Afghanistan, while in 1930 it deployed many multiples of that total all over the world, plus colonial auxiliaries who were partially paid for by the Crown?
Yglesias continues:
Farley gives some good answers to the question, but it’s worth noting that this is part of a perfectly general situation. As technology improves, the average level of productivity goes up. And as productivity goes up, wages go up as well, at least over the long term. The wages go up, however, more-or-less across the board whereas productivity has only actually improved in the select areas that have seen meaningful improvement. As a result, things that are intrinsically labor-intensive tend to get more expensive and rarer over time, even as overall living standards go up.
And Maybe McArdle explicates:
Occupying foreign nations being one of those labour-intensive things. The technical name for this phenomenon, with which Mr Yglesias didn’t want to bore his readers, is Baumol’s cost disease; it is thought to infest areas like health care as well as military operations.
But of course not everything which is labor-intensive has gotten more expensive over time — the obvious exception is anything which can easily be outsourced to foreign labor. A pair of shoes, for example, or a cup of rice.
The problem with foreign wars is not that they’re labor-intensive, but that the labor can’t be outsourced. Annoying as it must be to the Bush Administration, if you want to invade and occupy a foreign nation these days, you just have to do it yourself.
I’d also note, as a journalist, that productivity in journalism has barely improved over the past few decades, but that the cost of journalism has been plunging all the same. Word rates have barely budged since the 1940s, and, in the case of most bloggers, they’ve come all the way down to zero. Meanwhile, the cost to consumers of journalism has also dropped to zero. How come we hacks aren’t afflicted with Baumol’s cost disease?
Meanwhile, a DeLong commenter notes:
A good bit of the basket that a Darcy, had one existed, would have bought would have been personal service. You probably can’t buy the sorts of levels of personal service nowadays that a rich man during the Napoleonic wars could. Certainly not for $300K. And Schumpeter reminds us that no labour saving device is as good as the attentions of one body-servant.
And another does the math:
I think that in those days the wage for a live-in servant might be about 10 pounds/month. Applying the 600:1 ratio that would translate to $6,000 plus board but no other benefits. Sounds about right.
It’s worth noting here that the 600:1 ratio comes not from prices but from looking at relative income to the rest of society.
There are certainly a few things which have gone from middle-class commonplaces to upper-class luxuries within the space of a couple of generations: tailors and cobblers spring easily to mind. Live-in “help” is much less common than it used to be, and even something as non-obviously labor-intensive as a dozen oysters is vastly more expensive now, in real terms, than in the 50s or 60s.
I’d also be fascinated to look at the history of hotels through this lens. It strikes me that most hotels in the past were what we would consider luxury hotels today — luxury, in this sense, basically meaning “having a lot of staff”. As staff costs rose, and hotel-room prices started rising beyond the reach of much of the middle classes, a whole new set of mid-priced and low-priced hotels, which weren’t as labor-intensive, started to come in to being. On the other hand, there seem to be just as many luxury hotels today as there ever were in the past — which implies that between the rich and the on-expenses, the demand for such lodgings has remained strong even as the price has risen enormously. (The number of tailors and cobblers, on the other hand, has declined precipitously.)